ABSTRACT
This chapter explores the relationship between capital structure and executive compensation. The hypothesis to be tested is that when a firm issues bonds, it generally uses the proceeds for investment opportunities and further expansion of the production process, as a result of which profits would increase and so would the stockholders' returns. Therefore, with the eventual increase of stock price when the profit is higher, the executive compensation would increase as a reward for the expansion of the business and higher profitability. Total compensation equals salary and bonus, plus payments made under long-term compensation plans, restricted stock awards vested or released from restrictions during the year, thrift plan contributions, and other benefits. The regression analyses also show a positive association between executive compensation and sales growth as well as between executive compensation and stock price return, but no relation with net income and firm size.
